They say the darkest hour is just before dawn and that is certainly the case when it comes to the Spanish property market. It is in a severely depressed state with an over supply of properties in some locations and little demand from domestic and overseas buyers. Many value buyers will see this as an opportunity to buy a quality property at a heavily discounted price. Property experts are predicting a boost for the Spanish property market with the country’s new ‘Golden Visa residency investment visa set to attract a lot of buyers from outside the European Union. However, as you will see below, for every ‘bull’ there is a ‘bear’ out there.
The long anticipated ‘Golden Visa’ legislation granting non-EU nationals automatic Spanish residency if they buy suitable property investments will certainly impact on the market. This has now officially been made law after being published in the state Gazette (BOE). This opens the door to thousands of potential investors spending a minimum of €500,000. Whereas traditional buyers have been the British, Dutch and Germans, this could change with estate agents reporting a rise in interest from buyers from the Middle East, Russia and China. These nationalities have already been snapping up properties in anticipation of the new law, which is retrospective. The law will allow those who have already bought to benefit from the residency rights which allow them to stay in Spain for 12 months compared with the current 90 days and a further residency permit that is renewable every two years
The visa is set to boost the prime property market in Spain according to Knight Frank. Its latest residential insight report says that prime markets are on a firmer footing with some more affluent second home hotspot reporting price growth for the first time since the onset of the global financial crisis. According to the Knight Frank report Mallorca, Ibiza and Barcelona are leading the way and it is hoped that investors from Asia and the Middle East in particular will shore up some of Spain’s more oversupplied markets as a result of the investor visa. ‘The outlook for Spain’s luxury housing market is improving. Both the volume of enquiries and agreed sales have increased in the first half of 2013. Spain’s prime markets are attracting a broader range of international buyers who have the confidence and finance in place to purchase. Buyers previously looking in neighbouring European countries are seeing value in Spain and in particular the Balearics once more,’ the report says.
The report also reveals that Madrid is increasingly on the radar of international buyers with interest from buyers in the United States, Mexico, Colombia and Venezuela. Knight Frank’s associate office in Barcelona recorded more sales in the first half of 2013 than in the whole of 2012. Mallorca‘s recovery is also evident across most price bands but particularly below €600,000 and above €2 million and Dutch and Belgian buyers are increasingly active in the prime Ibiza market. Sales in Marbella rose 21% in 2012 year on year and there has also been interest from French buyers as a result of French President Francois Hollande’s policy on wealth tax. The report points out that Sotogrande remains a firm favourite with Madrid’s wealthy and Gibraltar’s business community. Popular areas include Sorogrande Costa, the Kings and Queens area and large plots close to the Almenara Golf Course
With the aftermath of more than a decade of debt-fuelled speculation is still taking its toll, not everyone is relying on the Golden Visa to cure the problems of the Spanish property market. Since the start of the year, foreign investors not seeking residency have begun to return to the Spanish property market for the first time since the crisis hit in 2008. Several large deals have been completed for assets that 18 months ago not even the most foolhardy speculator would have touched.
The question many people are asking is whether this increased interest from supposedly ‘smart money’ is an indication a floor has been placed under the property market, or whether such deals are simply speculative bets on heavily distressed assets. A rush of deals from private equity groups has been used by supporters of both sides of the argument to justify their case. Since the end of summer a number of real estate portfolios have been sold to more adventurous private equity buyers such as Blackstone and HIG Capital. The latter has bought a stake in the first large package of property assets put on the market by Sareb, Spain’s so-called “bad bank”.
A number of factors may be cited for the jump in the number of property deals, after three years in which almost no transactions took place. One has been the creation of Spain’s state-organised “bad bank”, which took €54bn of troubled property loans from the balance sheets of the country’s nationalised lenders. Sareb has begun to place these assets into portfolios to be sold to investors, which has helped generate confidence that a floor may have been set on prices . Another factor has been a wave of government-imposed provisioning rounds, forcing reluctant banks to write down the value of their bad loans and to raise capital to cover the expected loss. This has encouraged lenders to begin selling off assets at prices low enough to tempt foreign investors back to the negotiation table after years of denial and reluctance to accept large write downs.
Of course, in spite of encouraging signs, there is no guarantee that the good times are about to return. Spain has a stock of 650,000 unsold homes, according to its ministry of public works, with average prices having fallen by 30 per cent since the start of 2008. Nevertheless, some people believe the worst is over and now is the time to enter the market. ‘Fortune favours the brave’ and in this case, there are reasons to believe this will be true for Spanish property
